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ICE Singapore approved for European clearing while US blocked

Mon, Oct 05, 2015 - 6:47 PM

[LONDON] Intercontinental Exchange's Singapore clearing house, which acts as an important firewall between traders, has been recognized by the European Securities and Markets Authority as meeting the continent's standards, while its US and European units have yet to gain that status.

The central counterparty recognition will allow ICE Clear Singapore to provide clearing services to European companies, ICE said in a statement on Monday. The unit will go live on Nov 17, as will its futures market.

The so-called equivalence decision will help ICE's Singapore unit tap European customers, as they won't be subject to looming capital requirements that are seen as prohibitively expensive. Its European clearing house has yet to gain approval, and its US unit is unable to attain the designation because of disagreements between US and European regulators over clearing standards.

The tangled regulatory web highlights the difficulties the industry and its clients face in making business decisions as they await a final outcome from authorities. Onerous capital requirements for customers using non-recognized central counterparties have been delayed again, this time until Dec 15.

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Officials on both sides of the Atlantic have repeatedly clashed over central clearing. The companies stand between traders, holding capital and collateral to ensure losses at a trading firm don't harm its counterparties. Their widespread use is seen as a vital reform to prevent a repeat of the 2008 crisis, when interconnections between firms threatened the financial system.

The regulatory squabble concerns whether US standards are robust enough to satisfy the European Commission, and whether discrepancies would give a region or a company an unfair advantage. A failure to achieve recognition could hurt European Union banks, which would have to hold more capital for cross- border trading. It could also be a problem for the competitiveness of clearinghouses if they're disadvantaged by their home country's rules.

In the EU, the commission determines if another country's rules are as strong as the 28-nation bloc's own standards, known as equivalence decisions. Its officials have been engaged in more than two years of talks with the US Commodity Futures Trading Commission on derivatives rule clashes.

Australia, Hong Kong, Singapore and and Japan have been granted equivalence status, while the US has been left out so far.

Singapore is central to ICE's strategy for building its business in Asia. The company, which owns futures markets in the US and Europe, bought Singapore Mercantile Exchange for US$150 million. The futures products available at launch on ICE Futures Singapore will be Brent crude oil, gasoil, gold and two contracts tied to the Chinese currency. China's securities regulator in March expressed concern to Singapore over ICE's plans to offer cotton and sugar futures.